Japan’s price trend gauge hits record, heightening the case for BOJ exit. According to statistics released on Tuesday, a crucial indicator of Japan’s trend, inflation, increased to 2.2% in October, setting a new record and strengthening the argument for the central bank to reduce its enormous monetary stimulus.
The report confirms mounting indications in recent times that companies are raising their service pricing in anticipation of long-term wage hikes. The central bank views this as a necessary step towards removing the ultra-low interest rate regime.
The weighted median inflation rate, carefully watched as a gauge of whether price increases are spreading, increased 2.2% year over year in September after increasing by 2.0% in September. According to data from the Bank of Japan (BOJ), it was the fastest jump since comparable data became available in 2001.
At its upcoming policy-setting meeting on December 18–19, the BOJ will examine several issues, including the statistics.
The Bank of Japan continues to be a worldwide dovish anomaly, adhering to an extremely loose monetary policy. At the same time, other major central banks rapidly hiked interest rates to combat extreme inflation.
Even though core consumer inflation has been above target for over a year, the BOJ has committed to maintaining low interest rates until it can sustain its 2% inflation target.
There are encouraging trends in inflation and salaries. However, there is a great deal of uncertainty about whether this cycle will intensify, BOJ Governor Kazuo Ueda said to the legislature on Monday. Additional indications point to the possibility of the existing policy ending.
Businesses, unions, and economists indicate that the tight labor market and cost constraints that preceded this year’s pay increases—the biggest in almost three decades—will continue to be present in the run-up to the crucial spring wage negotiations in 2019.
The inflation rate of goods in the center of price fluctuations, or about at the 50th percentile of the distribution, is known as the weighted median.
It started to increase slowly last year, indicating a wave of price increases by businesses passing on rising raw material costs after being at zero for the previous 20 years. In contrast to the consumer price index (CPI), which is influenced by energy and fuel prices, the weighted median inflation rate may be used to track the extent of price increases.
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